Peer-Reviewed Article

Jurnal Keuangan dan Perbankan

Volume 25, Issue 3 2021, page. 508 - 531
ISSN: 1410-8089 (Print), 2443-2687 (Online)
DOI: 10.26905/jkdp.v25i3.5142

The Impact of Gold Price and Us Dollar Index: The

Volatile Case of Shanghai Stock Exchange and
Bombay Stock Exchange During the Crisis of
Covid-19
Joseph John Allwyn Kumar1, Robiyanto Robiyanto2*
Department of Management, Faculty of Economics and Business,
1,2

Satya Wacana Christian University, Salatiga, Central Java, Indonesia

*Corresponding Author: robiyanto@staff.uksw.edu

Abstract
This literature aims to analyze the impact of the Dollar Index and Gold Price returns and
volatility on stock market volatility of India and China, viz., Shanghai Stock Exchange and
Bombay Stock Exchange Sensex, during the period of Covid-19. This study employs daily
time-series data from January up to August for 2019, 2020, and a merged data of 2019-2020,
i.e., Pre-Pandemic, Mid-Pandemic and Pre through Mid-Pandemic periods, respectively; to
avoid possible abnormalities and heteroscedasticity, the GARCH (1,1) model is utilized to
scrutinize the data depending on which distribution is more acceptable, GED or Gaussian,
which is decided based on the Unit-Root and normality test results. The findings of this
study prove that Gold Price mostly does have a significant effect on both markets,
especially during times of financial crisis like the Covid-19 epidemic. Whereas Dollar Index
has a significant impact on emerging markets such as India and China though significant
effects persist in some cases, it is not valid in most cases.
Keywords: BSESN; COVID-19; DXY; GARCH; Gold; Spillover; SSE; Volatility

1. INTRODUCTION
On December 31st, 2019, a type of Pneumonia of an unknown cause was detected in
Wuhan, China. Soon after which the Chinese government first reported to the WHO
Country Office in China about the newfound infection. This lung-related issue was later on
identified as a cause of a new coronavirus. After a month of observation, uncertainty, and
rapid rate of escalation of the infection, this outbreak was declared a Public Health
Emergency of International Concern on January 30th, 2020. On February 11th, 2020, The
World Health Organisation (WHO) announced a name for the new coronavirus disease,
naming it COVID-19, as the world later started addressing the disease as the same (WHO,
2020).

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The outbreak of the Coronavirus; Covid-19, which will be referred to as C19 for the
sake of this study, was a sudden and unexpected plague that struck the world, and in a
way, set a halt to the daily and usual activities of mankind. Since the world was rapidly
progressing and millions of new inventions and activities took place globally, the sudden
pause of all literal and virtual movement did bring about many setbacks, as one would
probably assume. This pandemic, of course, encompassed an effect on many, if not most,
of the businesses in the world, which in turn caused the volatile fluctuations in stocks and
financial markets. The Novel Coronavirus (COVID-19) spread from a territorial emergency
in China's Hubei Province to a worldwide pandemic, values plunged, and market
instability soared upwards around the globe (Terry, Scott R, et al., 2020). Various Global
Financial organizations and platforms have stated that the current (May 2020) C19 situation
will have significant effects on the world economy, so much that it will even exceed the
2007/2008 world economic crisis. This recent C19 has affected all financial markets
globally; to be more specific, the share prices trend has fallen significantly and consistently
(Bhattacharya et al., 2021). Studies uncovered that C19 significantly affected the money-
related markets around the world. Definite signs of the effect of the C19 on the monetary
markets have been seen in various money-related markets on the planet (A. N. Sansa,
2020). Stock market returns are known to respond to major events. Existing studies have
identified several major events that have affected such returns, for example, disasters,
sports, news, and environmental and political events (Al-Awadhi et al., 2020). According
to Al-Awadhi et al. (2020), it is also known that stock market returns have reacted to
endemic diseases, like the SARS outbreak and EVD breakout in the past. Due to the effect
on the various equity markets, this paper aims to analyze how the Bombay Stock Exchange
(BSE) and the Shanghai Stock Exchange (SSE) have been affected by Gold Price and US
Dollar Index volatility. However, before this study was finished, a few experiments were
undertaken after the COVID-19 outbreak to calculate stock market uncertainty compared
to other capital markets. (Baker et al., 2020) just looked at how COVID-19 affects US stock
market uncertainty. The study was carried out in the same way as (N. A. Sansa, 2020), with
the confirmed cases of COVID-19 serving as independent data and China and US stock
returns serving as contingent data. As a result, this study aims to determine the relationship
between each variable before and during COVID-19 spreads by measuring stock market
volatility as proxied by the BSE and SSE market using reference from the US dollar index
and gold price in a period of one year (2019 to 2020).
Gold is a mineral, a chemical compound with the atomic number 79, and is found in
the periodic table with the symbol Au (Latin: 'aurum') (Robiyanto, 2018). Gold is used in
various fashions in today's world, i.e., jewelry, hedge fund, dentistry, risk diversifier,
inflation predictor, etc. In the world of finance, gold is primarily used for its store of value
abilities and its negative correlation with the American dollar, which makes it useful for
hedging (Dyhrberg, 2016). Corbet, Larkin, & Lucey (2020) observed that the correlation
between Chinese markets and gold grew to +0.335 and +0.347, respectively, with the
Shanghai and Shenzhen stock exchanges COVID-19 was recorded to be negative. In regards
to the US Petrodollar, China's market benchmark, the Shanghai Composite Index, has
ascended around 10 percent from February to March or 2020, without being affected by the
fact that demonstrated the production and administration segment's movements decreased
strongly in February because of the effect of the coronavirus episode. The Yuan's exchange
rate has additionally increased 0.73 percent against the US dollar, pulling back significantly
from the key psychological line of 7.00, and making it the subsequently best performing
among 11 significant Asian currencies (Karen Yueng; South China Morning Post 2020).

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The US Dollar Index is a measure of the currency of the United States, i.e., the United
States Dollar or USD, against a basket of countries weighed and used by the US trade
partners. The DXY, USDX, and Dollar Index will fall if the dollar weakens against these
countries and vice-versa (Marotta, 2015). The Dollar Index's main partners are weighed
against are; EUR, JPY, GBP, CAD, SEK, and CHF. Although the SEK (Swedish Krona) is
growing weaker, the weighted basket might be revised soon. The US Dollar Index, which
is measured as a value of the United States currency against a number of its trade partners'
currencies, strengthens when the value of the USD increases compared to other countries,
hence, leading it to be a good benchmark for the value of the USD and a crucial measure
for commodities that whose prices are dominated by the dollar (Sun et al., 2016). A study
was conducted by (Lien et al., 2020) regarding the Dollar Index, US Stock market, and
currency exchange on the Taiwanese stock market during the previous era of the financial
crisis. This study found that the foreign exchange rate drastically affects the stock markets
of both US and Taiwan. Fundamentally this means that Dollar Index does not have any
direct impact on the stock markets. However, because the most significant influence on the
stock markets was the exchange rates, it shows that the Dollar Index significantly influences
the stock markets, especially the stock markets of Taiwan. The US Dollar Index indicates
the strength or weakness of the dollar and is also an indicator to measure the exchange rate
of the dollars in foreign exchange markets internationally. Since most internationally
traded commodities are priced in dollars, the FOREX rate is highly significant and
influential for the US Dollar Index.
On a global scale, India has the highest saving rate of approximately 30%, out of
which 10% is invested in gold. Aruga & Kannan (2020) stated that based on the observation
during the previous economic crisis of 2008, gold is linked to the financial crisis because of
its sharp increase in investments. Empirical studies have found a strong correlation
between the exchange rate and gold prices (Bombay Stock Exchange). On March 13th, 2020,
in the early hours of trading around the time of 10 AM, the Indian stock markets crashed,
and trading had to be paused for 45 minutes; The BSE Sensex touched a 10% lower circuit
limit by dropping 3,090.62 points, reaching a low of 29,687.52 points, i.e., 9.43 percent
(Raksit, Katare, et al., 2020).
Though previous studies are proving the volatility of the stock markets concerning
Gold and US Dollar in BSE and SSE during such global epidemics, there is still a place to
learn how policymakers could predict the expected share market path during an earlier
period, before the condition matures and also to predict the moves of market participants
based on the level of volatility (Gormsen & Koijen, 2020). There is also a gap in this field
where analysis can be made by observing the first two quarters' market shock and find
methods to keep investors interested by altering a more favorable interest rate (Baker et al.,
2020). This study is going to contribute by emphasizing the impact of C19 on the stock
market index such as Gold Price and USD against Indian Rupees and Chinese Yuan, in BSE
and SSE respectively, before the strike of the widespread disease and the index volatility
during the shock of the first quarter of 2020. In the current pandemic scenario, the economy
is hesitant, and the stock system is unsure, posing a significant challenge. As a result, this
study is intended to assist investors and traders in further understanding the factors that
influence stock market volatility and provide additional insight on the impact of volatility
on stock market price during pandemics, allowing them to make more informed decisions
investment decisions and minimize danger. This study will be helpful to policymakers and
will enable them to better understand the variables that influence stock market volatility.

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Aside from that, the aim of this analysis is to prepare the next researchers to perform the
next study.
2. HYPOTHESIS DEVELOPMENT

COVID-19
The COVID-19 pandemic has prompted a massive projection in unpredictability.
Though the health authorities have conducted extensive research, reports indicate that the
virus seems to react differently depending on the person infected. Medical facilities are
going through vigorous challenges as the number of affected seemed to increase every day
in most countries. It has been proven that infrastructures are not prepared for such a
catastrophe. Though there are claims from political leaders about the development and
deployment of vaccines, it is yet not verified how long that could take and by that time how
much will the shock in terms of mortality rate. However, according to various news media,
since the end of May 2020, many governments have initiated lockdown easing to support
the general population's economies and anxiety. The initiation of the 'new normal'
movement was being drafted to lead a daily life even in a crisis. This situation would allow
the public to conduct almost all daily activities while observing the safety norms, such as
physical distancing, avoidance of touching one's face, wearing safety masks in public,
maintaining a hygienic and healthy lifestyle, etc. Nevertheless, the duration and
effectiveness of the alleviations mentioned above and containment strategies together with
the lockdown of markets, the economic impact and policy responses, along with the
diminishing speed of the recovery of the pandemic, cannot promise for how long the
temporary interventions of the government can last (Terry et al., 2020). It was stated by
Scott R. Baker et al. (2020) that; given the fact that the invisible hand of the government is
temporary, it is unlikely to predict: the consumer spending pattern which has been affected
by the pandemic, the effect on business survival, formations of start-ups, development and
research, capital investment and any other aspects that will have an impact on a short term
or long term productivity, although as of now all the factors as mentioned earlier seem to
be curving negatively.
The long-term consequence of the functioning economy coming to a standstill, on
supply chains and financial organizations, the commercial sector, and the household
economy, in general, is largely uncertain. Due to this, the business, policymakers, and stock
traders are trying to calculate the approximate growth for years to come (Gormsen &
Koijen, 2020). For example, the COVID-19 crisis leads to massive cuts in business
expenditures on innovation, training, and general management improvements, which we
expect to lower productivity into 2021 and beyond. Through various stock market volatility
measures, it is a fact that the global epidemic has caused an extreme situation of uncertainty
shock – this can be compared to the immensity of uncertainty caused in the years 1929
through 1933 during the era of the Great Depression (Baker et al., 2020).
Bombay Stock Exchange Index (BSE SENSEX)
The Bombay Stock Trade is represented and benchmarked by the S&P BSE SENSEX.
The only other significant indices of India is the CNX Nifty, which means the National
Stock Exchange. According to the S&P Dow Jones Indices, the S&P BSE SENSEX was
launched on January 10th, 1986. India's most tracked trendsetter of an index is the S&P BSE
SENSEX. It is designed to measure the 30 largest, most liquid, and financially sound
companies across key sectors of the Indian economy listed at BSE Ltd. It is intended to
quantify the functioning of the 30 biggest, generally fluid, and monetarily solid

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organizations across key parts of the Indian economy that are recorded at BSE Ltd (S&P
BSE SENSEX, 2020).
Prior to COVID-19, the market capitalization of each of India's leading exchanges was
about $2.16 trillion. Within the big caps, the 2019 stock market rebound was restricted to 8-
10 stocks. For the year 2019, Sensex returned about 14% (excluding dividends), but it was
dominated by blue-chip companies (HDFC Bank, HDFC, TCS, Infosys, Reliance, etc.),
without which the Sensex would have returned negative returns. At the beginning of 2020,
nearly 30 firms were scheduled to file initial public offerings (IPOs) at the start of the year.
Business conditions were relatively favorable, with new highs being reached in mid-
January (Bora & Basistha, 2021). However, on March 13th, 2020, the market had recovered
to the point that both the NSE and the BSE were trading at their highest levels ever, with
highs of 12,362 and 42,273, respectively. In the early hours of trading, around the time of
10 AM, the Indian stock markets crashed, and trading had to be paused for 45 minutes; The
BSE Sensex touched a 10% lower circuit limit by dropping 3,090.62 points, reaching a low
of 29,687.52 points, i.e., 9.43 percent (Katare et al., 2020).
Macroeconomic variables such as Gold and Exchange rate have been shown to have
a substantial impact on the Indian Stock market. However, limited studies analyze the
relation between BSE volatility and macroeconomic variables during the COVID-19. A
Granger causality test showed a negative impact by Gold prices and Exchange rate on the
Indian Stock market (Misra, 2018). Bilal et al. (2013) found a long-term relationship between
average gold prices and BSE stock indices by using Co-Integrated Test. A study in 2012,
cited Misra (2018), showed that out of most of the macroeconomic variables such as CRR,
reverse repo rate, gold price, and FOREX, it was seen that gold price and FOREX, along
with WPI and inflation, were the most significant. Polisetty et al. (2016) found no cause or
effect of a meaningful relationship between stock price and FOREX in India. The study
found that the degree of positive correlation is meager. However, there is a relationship
between the two indices, i.e., FOREX and BSE. This relationship is "chance" rather than
"cause"; due to the sensitivity of the Indian stock markets.
Shanghai Stock Exchange Index (SSE Composite)
The Shanghai Composite Index showed resilience to the COVID-19 pandemic with a
significant gain in stock values during the first fifty days into the pandemic; on the contrary,
the Dow Jones Industrial Average experience adverse impact from the COVID-19
pandemic with a significant loss of stock market value on its index during the first fifty
days into the COVID-19 pandemic. Although the difference in stock values during the
COVID-19 pandemic for Euronext 100 and the S&P 500 was not statistically significant,
their mean stock index values show a reduction in value during the sample period first fifty
days within the COVID-19 pandemic. From the initial results from various studies, it can
be seen that the Chinese Composite Index showed resilience to the COVID-19 pandemic.
The Chinese markets offer some degree of resiliency compared to other global stock
markets (Ngwakwe, 2020). In the early 18th century, around the 1920s, with the founding
of the Shanghai Chinese Securities Exchange, Shanghai emerged as the financial center of
the Far East, of which both Chinese and foreign investors could trade futures, bonds, and
stocks. In 1946, the Shanghai Chinese Security Exchange was renamed the Shanghai
Securities Exchange Co., Ltd (Fulop, 2007).

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Many types of research were conducted to discuss the relation between SSE volatility
and macroeconomic variables (i.e., gold price and DXY). However, only a few of them are
related to the COVID-19 pandemic, while they only analyze the impact COVID-19 period
on the SSE return. The study conducted by G.G. Tian et al. found that the Chinese Yuan
(RMB) against the foreign exchange rate of the US Dollar (USD) can cause stock prices to
become cointegrated (Tian & Ma, 2010). This study found that the exchange rate of RMB
against the USD affected the stock prices with a positive correlation, where, 1% change in
the rate of the Chinese Yuan against the US Dollar would cause a 32% change in the long
run of the SSE index. It was found by (Hoang et al., 2015) that the traders in Shanghai Gold
Exchange and Shanghai Stock Exchange prefer portfolios with gold and without depending
on whether they are risk-opposed investors or risk-seeking ones, respectively. The study
also suggested that SGE would be considered in the diversification of Chinese stock and
bond portfolios, especially during the crisis era. While during the COVID-19 pandemic, In
the financial market context, the impact of COVID-19 is depicted in the first two months of
2020. Capital markets materialized the increased uncertainty regarding given a new
pandemic by leading to the financial market volatility of Shanghai (-10%), Shenzhen (-6%),
and Hong Kong (-19%) are down by comparatively modest percentages this year (Ruiz
Estrada et al., 2020).
Stock Market Volatility
The definition of volatility in the context of this study is the unpredictability and
unreliability of the changes in stock price within short-term periods. It can also be known
as return volatility. In a stock market, if there is an elevated level of price volatility during
periods of unstable trading, it may lead to a stock market crisis. It may also start affecting
other markets (Rashid Sabri, 2004). The stock exchange market aids in the flow of excess
funds, especially from those with surplus to those in deficit or from lenders to savers
(Olweny & Omondi, 2011). Due to this reason, the emergence of volatility in stock markets
has always been a substantial concern and affair for analysts and policymakers. When
investors look for the potential market to trade in, it is commonly known and advised to
check the volatility statistics of interested stock market returns. Quite a few traders prefer
stocks that are highly volatile even though the chances of risks are high. This is due to the
fact that stocks with high volatility level also have a high probability of achieving greater
capital gains (Robiyanto et al., 2018). Volatility can also be used and is used consistently to
strengthen the accuracy of forecasting and the power of prediction. Nirodha I et al. (2015)
stated in their study that for policymakers, a volatile stock market can be and will be a
major concern because the uncertainty of stocks leads to instability and adversely impacts
growth prospects. A study conducted by Handayani et al. (2018) analyzed the variables that
affect stock market volatility. The variables used in the study to measure the significance
of volatility were: Return on Equity, Cash Ratio, Debt Equity Ratio, Dividend Pay-out Ratio,
company size, and sales growth. The study found that higher stock volatility is led by
higher sales growth and that it was the only variable with a significant positive effect on
stock price volatility.
The Corona-Virus-SARS-19 pandemic has had a significant impact on stock market
volatility. It is common for high volatility to be correlated with economic and political
vulnerability. There is proof of a positive effect on the Dow and Jones, and S&P returns
(Onali, 2020). The high level of uncertainty of traders towards the C19 situation has caused
and will cause even more considerable volatility of stock returns (Liu, 2020). A study
conducted on the previous financial crisis era (2008) verified that financial catastrophes are
instrumental to elevated stock return volatilities across major markets. The literature

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proved that the bigger a stock market, the greater the immensity of that market's persisting
volatility (Karunanayake et al., 2009). Another study regarding the pre-crisis, mid-crisis,
and the post-crisis era of the financial turmoil during 2008 observed that the stock market
volatility of the S&P 500 Index increased to 43.6% from 13.4% in the mid-crisis period from
the post-crisis-period respectively, and even after the markets rebounded and rallied from
the crisis-era to the post-crisis era the volatility levels did not relapse the pre-crisis era
levels, thus indicating that the traders and investors still believed and expected higher rates
of market volatility despite the recovery (Fiszeder & Perczak, 2016).
Gold and Stock Market Volatility
Gold is a long-lasting and valuable metal that can be preserved and recovered at any
time while maintaining its integrity. It is a chemical element with a high atomic number
(79), and it is also known in the periodic table as Aurum (Au). Since gold is regarded as a
precious metal, it is traded in the futures and commodities markets as bullion or gold bars
of different weights (usually grams and kilograms) or as a monetary asset (Robiyanto,
2018).
Being that precious metals are traded in commodity markets, they have attracted the
international attention of investors as a "safe haven" and as a substitute investment with a
greater sense of positivity during chaotic periods. Not at all times is gold to be thought of
as a safe haven for stocks. It is explicitly known for negative market shocks as the attribute
of a safe haven is short-lived. Research conducted regarding gold as a hedge or safe haven
stated; that gold is only a safe haven when it is most needed and is not supposed to be, nor
is, so during periods of rising stock markets. The study by Baur & Lucey (2010) proved that
though gold is a safe haven for stocks, in the long run, gold is definitely not a safe haven,
as in the study states that hedge is described by Baur & Lucey (2010) as an asset that is
uncorrelated (weak hedge) or negatively correlated (strong hedge) with some other asset
owned by the investors on average. This study is also supported by (Dar & Maitra, 2017).
China will soon be a significant gold consumer, according to the World Gold Council
(in 2015, the WGC stated that) (Hoang et al., 2015). A 30% drop in the Shanghai Stock
Exchange (SSE) in 2015 resulted in a halt of trading for half of the listed companies to
prevent further losses. When the stock market had a problem, the media frequently played
up the myth of gold's inviolability. On average, gold is not a hedge, though it is a highly
reliable safe haven under extreme stock market conditions during the same time periods in
most Chinese stock markets (Ming et al., 2020).
Gold is traded on the Stock Exchange (Kumar & Gupta, 2019). With its unique socio-
cultural status, India is the world's primary gold consumer. For emerging markets such as
India, Gold is a weak safe haven at best. Looking at the peaks of certain crisis periods, gold
is a strong and safe haven for most developed markets, while gold plays only a minor role
in emerging markets against stock prices (Baur & McDermott, 2010). Gold is bought to
prevent stock market declines and to counter inflation (Aruga & Kannan, 2020).
During the COVID-19 pandemic, most commodities in the market were disrupted,
much like the stock and foreign exchange markets. According to Senol & Zeren (2020), the
global primary product price declined by 37.3 percent in March 2020. However, it also
reported that the precious metals sector increased by 5% during that period. The research
studied by A. N. Sansa (2020) revealed that the positive correlation between Shanghai
Financial Stock Markets and the COVID-19 confirmed cases is significant. I was having a
significant positive relationship and impacting the stock markets of China. In the Q1 of

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2020, regarding China's case, its retail sales and fixed assets dropped by 19.0 percent (year-
over-year) and 16.1 percent, respectively (A. N. Sansa, 2020). This had led the economy of
China to shrink by 6.8 percent in Q1 of 2020.
The case was 'Gold and Stock Correlation Under Uncertainty,' in which Gao & Zhang
(2016) demonstrated that for the first time investors, when economic uncertainty increases,
the shares for stocks drops drastically and demand remains constant, resulting in lower-
risk/higher-quality assets pushing investors to divest their stock holdings and allocate
them to 'flight to gold' Assets, such as gold and stock react inversely; this significantly
impacts both volatilities (Lu et al., 2014).
H1a: Gold Price has a positive effect on SHANGHAI Stock Exchange volatility
H1b: Gold Price has a positive effect on BOMBAY Stock Exchange volatility
USD Index and Stock Market Volatility
The U.S. stock market is seen as the global information center, and any changes in
U.S. stocks influence the volatility of stock markets worldwide, with an impact on foreign
exchange markets (E.-D. Su & Fen, 2011). Wu and Wu (2017) mentioned the relationship
between the US dollar and capital market participants in their study. The literature showed
that the relationship between the carry trade aggregate returns and the USDX 5 futures
prices appears to be more dissenting and continues in relation to the 2007-08 international
financial crisis and the 2010-11 sovereign debt crisis of Europe, though the dollar index
shows an ambiguous relationship before 2008. This special circumstance can be interpreted
as a fact that when universal risk disinclination becomes high, global financial traders seem
to redirect capital to a more balanced currency, during which the US Dollar inflates
simultaneously. A strong positive symmetric volatility is USDX, implying that the investors
turned to the US Dollar as a safe-haven instrument while the other currencies depreciated.
Hosen (2013) found that there is a significant influence of the US Dollar Index on the
Jakarta Composite Index, i.e., if the USD Index increases, JCI would decrease. From the
perspective of an investor, if the currency declines, it shows that the condition of the
economy is not doing that well; as a preventive measure, the investors will be instigated to
either invest less in the capital market or liberate their stocks, wherefore prompting the
stock market (JCI) to experience a decline.
The Dollar Index significantly influences the Hong Kong stock markets, the fact being
that changes in exchange rate greatly influence the Hong Kong stock returns volatility. The
US dollar index, though not directly, plays a crucial role in the Hong Kong stock market
since the exchange rate of Hong Kong is highly affected by the dollar index (Dai, Zhou &
Dong 2020). Considering the circumstances of the stock market crash and high volatility,
the DXY acts as a worthy haven for DAX, BSE, and NIKKEI225, while it is an unreliable
one for SSE, SP500, and even BTC (Cheema & Szulczuk, 2020).
Demand for liquidity is known to increase in times of extreme market crisis. In such
situations, the flight-to-liquidity paradox comes into effect, in which the preferences of
traders change, and the price of illiquid assets drops, and the liquidity conditions of
markets start to take a downturn (Ben-Rephael, 2017). The international flow of capital
plays a significant role in defining the correlation between stock returns and currencies (in
this case, USD), as they are a hedge trigger in flight-to-quality conditions. Due to this,
investors from developing countries move towards investing in developed currencies as a
natural haven, especially if a sudden crisis were to occur (Cho et al., 2016). Ghosh (2014)

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studied over a period of a pre-crisis and post-crisis era of the Indian markets and analyzed
significant volatility spillover from the Indian stock markets and other financial market
segments to foreign exchange markets. The Dollar index has been proven to have spillover
effects from various stocks but should be invested in depending on the time as it is a high
risk and high return index. According to J. Bin Su (2016), investing in the Dollar index pre-
QE (Quantitative Easing) can lead to higher returns, whereas investing in the Dollar index
can lead to a lower expectancy in post QE periods.
H2a: US Dollar Index Negatively Impacts the SHANGHAI Stock Exchange Volatility
H2b: US Dollar Index Negatively Impacts the BOMBAY Stock Exchange Volatility
3. METHOD, DATA, AND ANALYSIS
This study aims to analyze and prove the hypothesized theories by explaining and
scrutinizing the data of the dependent and independent variables. The results will show
how the dependent and independent variables correlate to each other. Four separate
variables are being examined here: Gold price, US dollar index, and volatility in Shanghai
and Bombay. The later variables (GOLD PRICE and the U.S. DOLLAR
INDEX/INDEX/INDEX) are the independent variables. Quantitative (secondary) data
were obtained from Yahoo Finance (beginning on June 17th, 2019, and spanning a total of
one year, up to June 16th, 2020). Therefore, after the crisis, the degree of instability has been
measured six months after Covid-19 and carries on until the middle of 2020, which
constitutes a period of survival during the pandemic.

Operational Variables Defined

The study uses two dependent and two independent variables. The dependent
variables are SSE stock return volatility and BSE stock return volatility, while the
independent variables are Gold Price and US Dollar Index volatility. All the variables are
collected and will be calculated on a daily basis.

The formula used to determine stock returns to calculate the volatility is as follows equation
1.

=
( ) ( )
( )
(1)
( )

Where ( )
represents the SSE stock return on a particular day more inclined to the most
recent day (t-day), ( ) is the symbol of SSE closing price on the t-day, and ( ) is SSE
one day before the t-day. The same formula is also used to derive the stock return volatility
of BSE SENSEX, as follows in equation 2.

=
( ) ( )
( )
(2)
( )

The Dollar Index, which is an independent variable, will be determined by using

the returns of the DXY index, which will be represented as ∆ ( ) And can be calculated
using the following equation 3.

∆ =
( ) ( )
( ) (3)
( )

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In which, ( ) is the symbol used for the Dollar Index (DX-Y-NYB) on the t-day, and the
day before the t-day is symbolized by ( ).

The gold price variable will be calculated using gold price changes which
will be symbolized as ∆ ( ) And can be gained using this equation 4.

!( ) !(
∆ =
)
( ) !(
(4)
)

Where ( ) represents the gold price at t-day, and ( ) is the gold price the day
before the t-day.

The technique of Volatility Analysis

This research uses volatility as a dependent variable; therefore, it follows the GARCH
(Generalized Autoregressive Conditional Heteroscedasticity Method). The GARCH
models can account for heteroscedasticity, and nonstationary data is applied frequently in
finance research connected to stock market returns (Putra & Robiyanto, 2019).

The application of the ARCH and GARCH models to empirical studies has exploded
in their investigation of the market volatility in Malaysia, and the authors note that it
emphasizes the non-binary clustering of attraction and overly-tailed return distribution.
Estimation of the mean and conditional variance is built into the GARCH model

Conditional volatility is used to scrutinize the return of the market. If each variable
studied has a conditional variance, the GARCH can be used (Hoga, 2019). The GARCH
method consists of three steps: Normality check, Arch effect, and G-Based Estimator
(Robiyanto, 2018).

The GARCH is presented as fluctuating over time (Hoga, 2019). The study will have
two GARCH models since it has two dependent variables. Thus, the model is defined in
equations 5 and 6.

" = #$ + # + #& + '& + ( (5)

" = #$ + # + #& + '& + ( (6)

Where:
" = ) *+,- . /0 1/ℎ,345 5.6738
" = ℎ,34ℎ,9 . /0 1/ℎ,345 5.6738
# = :79/5 5.6738
#& = ; ,7<3 51 5.6738

With:

( = = ( + > ?

> ? = ' ∈

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With:

D ?

' & = A $ + B AC 5 & + B #E ' & E

C E

AC 5 & : Volatility of ARCH component

#E ' & E : Volatility of GARCH component
The Error Term (( ) is independent and identically distributed N (0, 1), and independent
from (> ? ).

4. RESULTS

Descriptive Statistics
A descriptive statistic is used to calculate mean, standard deviation, minimum,
maximum, and the amount of the data used. As stated in table 1, the data used in the pre-
pandemic data is 83 data from January 2019 through August 2019. The gold return had the
higher average in the pre-pandemic, which means that it had the highest return compare
to the other variables. However, the gold return was considered to have an increased risk
since the standard deviation value is 0.007461 and was highly volatile as the gold volatility
average is 1.471483 (the highest average compared to the other volatility variables). In
contrast, DXY return had the least standard deviation value (0.003022), which translates to
DXY returns to have had the least risk compared to the other return variables. Though its
return rate is considered low since the average of DXY returns was 0.45% (0.000451).
During the midst of this COVID-19 pandemic, DXY has shown a decline in their
return (BSESN return: -0.24 percent, SSE return: -0.14 percent, DXY return: -0.05 percent).
Besides that, BSESN return also had the highest standard deviation (0.028076), which
means that apart from experiencing a decline during the COVID-19 pandemic, BSESN
return is shown to have the highest risk. Additionally, gold had a positive value of average
during the pandemic, which is 0.26% (0.002562) with a risk as much as 1.43% (standard
deviation: 0.014352) and the least volatile compared to the other variables as the gold
volatility average is 0.990003.
The total amount of data (both pre-and pandemic) used will be set at 164. As shown
in table 1 from 2019 through 2020, the average of BSESN return (-0.14% or -0.001425), SSE
return ( -0.05% or -0.000495), and DXY return (-0.001% or -0.000014) are negative which
means their returns were declined. Other than that, DXY has the lowest risk since it has a
standard deviation of 0.004265, and BSESN has the highest since it has a standard deviation
of 0.020471 compared to the others. Given the figures in the table, it can be seen that the
gold return was the only one that had a positive average and the standard deviation of
1.15%, meaning that by 2019, there is a 1.15% risk and the least volatile compare to the other
variables since the gold volatility average is 0.997445.

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Table 1. Descriptive Statistics

Period Variable N Minimum Maximum Mean Std. Dev.

BSESN return 83 -0.015851 0.017358 0.0000102 0.007272
SSE return 83 -0.024297 0.023856 0.000603 0.009339
Gold return 83 -0.015345 0.035921 0.000864 0.007461
Pre-
DXY return 83 -0.008385 0.008258 0.000451 0.003022
Pandemic
BSESN volatility 83 0.641952 1.751215 1.283853 0.251144
(2019)
SSE volatility 83 0.431807 1.165326 0.818626 0.208831
Gold volatility 83 0.346959 2.803659 1.471483 0.656947
DXY volatility 83 0.788329 1.406069 0.990913 0.137283
BSESN return 83 -0.131526 0.089749 -0.002398 0.028076
SSE return 83 -0.077245 0.031464 -0.001351 0.017391
Mid- Gold return 83 -0.04631 0.042512 0.002562 0.014352
Pandemic DXY return 83 -0.016131 0.015817 -0.000541 0.005182
(2020) BSESN volatility 83 0.681364 1.096829 1.000892 0.087698
SSE volatility 83 0.20774 4.967101 1.000219 0.682712
Gold volatility 83 0.004803 7.331017 0.990003 0.817402
DXY volatility 83 0.562803 1.145803 1.006415 0.138106
BSESN return 164 -0.131526 0.089749 -0.001425 0.020471
SSE return 164 -0.077245 0.031464 -0.000495 0.013923
Pre-&-
Gold return 164 -0.04631 0.042512 0.001638 0.011481
Through
DXY return 164 -0.016131 0.015817 -0.000014 0.004265
Pandemic
BSESN volatility 164 0.688224 1.066968 1.001214 0.061493
(2019-2020)
SSE volatility 164 0.300854 2.833198 1.000439 0.259216
Gold volatility 164 0.076778 3.701894 0.997445 0.334265
DXY volatility 164 0.604186 1.090616 1.002355 0.104963

Stationarity Test
The analysis of this study begins with a stationary test; the stationary test is used to
comprehend whether or not there exists the presence of unit root in the data used, i.e., the
returns of Bombay Stock Exchange (BSESN), Shanghai Stock Exchange (SSE), Gold Price
Index (GC) and Dollar Index (DXY). To perform the unit-root test, the method executed for
the investigation is the ADF Test or the Augmented-Dickey Fuller test, where the critical
value (α) is 0.05 (5%).
It is to be noted that the data is accepted if the Probability is lower than the critical
value (Probability <α). The data of returns used to conduct the ADF Test consists of three
periods; 2019, 2020, and combined data of 2019 through 2020. This is because the study's
main emphasis is on the volatility of the respective indexes and their relation pre and mid
C19 pandemic. As shown in Table 2, the results of the ADF test verifies that the Probability
for all of the data is below the critical value 0.05 hence proving that all the variables are
stationary and hence accepted to be further scrutinized.

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Table 2. Stationary Test to find Unit-Root

Period Variable t-statistic Probability
BSESN -9.0893 0.0000***
Before Pandemic SSE -8.53556 0.0000***
2019 DXY -10.3906 0.0000***
GC -9.94439 0.0000***
BSESN -3.54396 0.0092***
During Pandemic SSE -8.69094 0.0000***
2020 DXY -8.34472 0.0000***
GC -7.16376 0.0000***
BSESN -3.54396 0.0092***
January to August 2019 & SSE -8.69094 0.0000***
2020 DXY -8.34472 0.0000***
GC -7.16376 0.0000***
Note: *, **, *** indicates the level of significance at 10%, 5%, 1%

Normality Test
They are advancing from the stationary test the data is further scrutinized by
performing a normality test. The normality test is performed to pronounce what model of
GARCH is to be implied to scrutinize the derived data.
The GARCH equation has been used since its foundation by Tim Bollerslev (1986) in
thousands of studies. The equation relies on three main models, i.e., Normal, Student-t,
GED, or Generalized Error Distribution. Yaya et al. (2014) explain that while using the
GARCH equation the scrutinize time-series data, it is common for Normal Distribution to
be applied. However, the fact remains that most GARCH methods have a greater kurtosis
than the normal distribution, which led to instate that the Normal (Gaussian) distribution
is unacceptable for apprehending the tail performance of series. Hence, depending on the
normality test, this study will use the GED distribution proposed by Nelson (1991), where
the distribution of data is not normal.
The data will determine whether it is normally distributed or not depending on the
results derived through the Jarque-Bera test. With the results originated through the
normality test, it will be concluded on what GARCH model is best suited to obtain the
empirical outcome. The data will be assumed normally distributed if the Probability is
greater than the significance level, i.e., 0.05 (5%). In the case of high kurtosis, where the
Probability is lower than 0.05, data is considered to be abnormal. Thus, for the deduction,
the normally distributed data will use the Gaussian Model of GARCH, as for abnormal
data, the Generalized Error Distribution or GED Model is applied. The results of the
normality test can be observed in table 3.

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Table 3. Normality Test

Pre-Pandemic Normality Test (2019) Probability Model
BSESN Returns to GC, and DXY returns 0.461946 Gaussian
SSE Returns to GC & DXY Returns 0.666606 Gaussian
BSESN Returns to GC and DXY Volatility 0.403898 Gaussian
SSE Returns to GC & DXY Volatility 0.401332 Gaussian
BSESN Volatility to DXY & GC Returns 0.399701 Gaussian
SSE Volatility to DXY & GC Returns 0.023229 GED
BSESN Volatility to DXY & GC Volatility 0.632085 Gaussian
SSE Volatility to DXY & GC Volatility 0.004931 GED
Mid-Pandemic Normality Test (2020) Probability Model
BSESN Returns to GC and DXY returns 0.228474 Gaussian
SSE Returns to GC & DXY Returns 0 GED
BSESN Returns to GC and DXY Volatility 0.079944 Gaussian
SSE Returns to GC & DXY Volatility 0 GED
BSESN Volatility to DXY & GC Returns 0.001946 GED
SSE Volatility to DXY & GC Returns 0 GED
BSESN Volatility to DXY & GC Volatility 0 GED
SSE Volatility to DXY & GC Volatility 0 GED
Normality Test Pre and Through-Pandemic (2020) Probability Model
BSESN Returns to GC and DXY returns 0.166108 Gaussian
SSE Returns to GC & DXY Returns 0 GED
BSESN Returns to GC and DXY Volatility 0.09344 Gaussian
SSE Returns to GC & DXY Volatility 0 GED
BSESN Volatility to DXY & GC Returns 0 GED
SSE Volatility to DXY & GC Returns 0 GED
BSESN Volatility to DXY & GC Volatility 0 GED
SSE Volatility to DXY & GC Volatility 0 GED

Analysis of GARCH results

The GARCH analysis results can be observed in tables 4 and 5 Where, the tables
indicate the results that depict whether or not the independent variables GC and DXY
returns and volatility have a significant effect on the dependent variables, i.e., the volatility
of BSESN and SSE of the years 2019, 2020 and 2019 through 2020.
In the first GARCH results, as portrayed in table 4 can be observed that the only
significant effect in the year 2019 is where DXY return negatively impacts SSE volatility.
This proves that in the pre-pandemic era during the year 2019, H2a: US Dollar Index
Negatively Impacts the SHANGHAI Stock Exchange Volatility is accepted since DXY
returns do negatively affect SSE Volatility. Although it is to be noted that none of the
GARCH probability is below the level of significance 0.05 (5%) thus, it does not follow the
GARCH pattern.
In the year 2020, the rise of the epidemic BSESN volatility has been shown to be
significantly affected by gold returns and volatility, since the gold returns have a significant
negative effect H1b: Gold Price has a positive effect on BOMBAY Stock Exchange volatility
is rejected.

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SSE's volatility for the year 2020 has been positively affected by GC returns proving
H1a: Gold Price has a positive effect on Shanghai Stock Exchange volatility to be accepted.
In the case of DXY's effect on SSE's volatility in the pandemic era, it can be observed that
DXY's returns negatively affect SSE volatility proving H2a (US Dollar Index Negatively
Impacts the SHANGHAI Stock Exchange Volatility).
However, it is to be acknowledged that the effect of SSE's volatility does not follow
the GARCH pattern as the Probability of GARCH for the volatility of SSE is well above the
significance level of 0.05 (5%).
The GARCH analysis that was conducted on a combined data of two continues series
of data being the year from the year 2019 through the year 2020, shows that GC and DXY
returns have positively affected SSE volatility which approves H1a: Gold Price has a
positive effect on SHANGHAI Stock Exchange volatility and disproves H2a: US Dollar
Index Negatively Impacts the SHANGHAI Stock Exchange Volatility.
The result also shows that only the effect on the volatility of BSESN has a probability
lower than the significance level of 0.1 (10%), which indicates that it follows the GARCH
pattern. Nonetheless, the effect on SSE's volatility does not follow the GARCH pattern as
the Probability of GARCH for the volatility of SSE is above the significance level.

Table 4.The Impact of Gold and DXY Return toward BSESN and SSE Volatility
Dependent Independent GARCH
Period z-statistic Probability
Variable Variable z-statistic Probability
Gold Return 1.080345 0.28
BSESN
DXY Return 0.957532 0.3383 0.218539 0.827
volatility
Pre- C 72.46779 0.0000***
Pandemic Gold Return -1.292464 0.1962
SSE Volatility DXY Return -2.325786 0.0200** -0.78474 0.4326
C 81.08978 0.0000***
Gold Return -2.037295 0.0416**
BSESN
DXY Return -0.231403 0.817 2.391041 0.0168**
Volatility
Mid- C 178.9479 0.0000***
Pandemic Gold Return 2.860957 0.0307**
SSE Volatility DXY Return -2.161154 0.0042*** 0.377822 0.7056
C 76.77398 0.0000***
Gold Return -1.368658 0.1711
BSESN
DXY Return -0.1792 0.8578 2.873163 0.0041***
Pre and volatility
C 328.6903 0.0000***
Through
Gold Return 4.856326 0.0000***
Pandemic
SSE Volatility DXY Return 8.039874 0.0000*** -0.27036 0.7869
C 319.2561 0.0000***
Note: *, **, *** indicates the level of significance at 10%, 5%, 1%

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Table 5. The Impact of Gold and DXY Volatility toward BSESN and SSE Volatility
GARCH
Dependent Independent
Period z-statistic Probability z-
Variable Variable Probability
statistic
Gold Volatility 0.023424 0.9813
BSESN
DXY Volatility 12.40282 0.0000*** -1.29517 0.1953
volatility
C -9.604537 0.0000***
Pre-
Pandemic Gold Volatility -6319.956 0.0000***
DXY Volatility 0.161808 0.8715
SSE Volatility 0.275556 0.7829
230,000,00
C 0.0000***
0
Gold Volatility 9.011802 0.0000***
BSESN
DXY Volatility 2.093611 0.0363** 2.151381 0.0314**
Volatility
Mid- C 10.86821 0.0000***
Pandemic Gold Volatility 2.825456 0.0047***
SSE Volatility DXY Volatility 8.670394 0.0000*** 0.544944 0.5858
C 3.27325 0.0011***
Gold Volatility 6.027007 0.0000***
BSESN
DXY Volatility -2.227655 0.0259** 1.90006 0.0574*
Pre and volatility
C 56.82443 0.0000***
Through
Pandemic Gold Volatility 6.149309 0.0000***
SSE Volatility DXY Volatility 3.810754 0.0001*** -0.33752 0.7357
C 12.02436 0.0000***
Note: *, **, *** indicates the level of significance at 10%, 5%, 1%

Table 5 indicating the second part of the GARCH analysis, which depicts the impact
of the volatility of the independent data, as opposed to returns (Table 5), towards the
dependent data. The effect that can be noticed is that the volatility of BSESN has been
positively impacted by the volatility of DXY, which disproves the theory of H2a: US Dollar
Index Negatively Impacts the SHANGHAI Stock Exchange Volatility. In comparison, the
volatility of SSE has been negatively affected by GC volatility that disproves H1a (Gold has
a positive effect on SHANGHAI Stock Exchange volatility). Although it is to be noted that
for the year 2019, none of the GARCH probability is below the level of significance 0.05
(5%); thus, it does not follow the GARCH pattern.
It is depicted in table 5 that a significant effect seemed to be present in almost all
scrutinized data. The year 2020's BSESN volatility has been significantly affected by gold
volatility positively affecting it; hence, proving H1b acceptable. The volatility of BSESN has
also been positively influenced by the volatility of DXY rejecting H2b: US Dollar Index
Negatively Impacts the BOMBAY Stock Exchange Volatility.
Furthermore, SSE's volatility for the year 2020 has been positively affected by GC
volatility, once again proving H1(a): Gold Price positively affects Shanghai Stock Exchange
volatility to be accepted. DXY volatility has a positive effect on SSE volatility disproves the
hypothesis H2a: US Dollar Index Negatively Impacts the SHANGHAI Stock Exchange
Volatility. However, it is to be acknowledged that the effect of SSE's volatility does not
follow the GARCH pattern as the Probability of GARCH for the volatility of SSE is above
the level of significance 0.05 (5%).The final GARCH (Table 5) description on the combined

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data of two continuous series of data being drawn from the year (2019) prior to the novel
coronavirus catastrophe combined with the data of year (2020) the epidemic broke out.
It can be noted from the results of the GARCH analysis that the volatility of the
dependent variables has been mostly positively influenced. GC volatility has positively
affected BSESN and SSE volatility (H1a and H1b accepted), while DXY volatility has
negatively affected BSESN (H2b accepted), and positively affected SSE volatility (H2a
rejected), respectively. The result also shows that only the effect on the volatility of BSESN
has a probability lower than the significance level of 0.1 (10%), which indicates that it
follows the GARCH pattern. Nonetheless, the effect on SSE's volatility does not follow the
GARCH pattern as the Probability of GARCH for the volatility of SSE is above the
significance level. In comparison, the GARCH model can be observed in the effect of BSESN
volatility with the presence of a significance level below 10 percent (0.1).

5. DISCUSSION

In the study's first analysis of the volatile rate of the year 2019 and the year, before
the novel pandemic struck, it seems to show that there was always a volatile presence of in
relation to stock markets and the Gold Price and dollar index. As the GARCH analysis has
proved in Table 5 that DXY volatility positively affects BSESN volatility, this proves that
H2b is not accepted; this is in line with a study conducted by (Shafiullah et al., 2020). The
literature proves a positive effect between the two variables; a rise in the US Dollar Price
also causes an increase in the BRICS stock index and vice versa. Prior to the COVID-19 in
the case of the SSE, the Dollar Index Returns (DXY) negatively impacts the stock market.
Mikhaylov also proved this where the study proved that money markets, namely US
Dollar, have a negative volatile spillover effect on emerging markets, thus proving
hypothesis H2a as acceptable. The result also depicts so in the case with Gold Price (GC)
Volatility, where the volatility of GC negatively impacts Shanghai Stock Exchange
Volatility this portrays that in normal economic conditions, Chinese investors use gold as
a hedging commodity for short term periods as they are more accustomed to responding
to stock market news which tends to make them irrational traders as stated by He et
al.,(2020). We can see that the majority of the stock market still had a negative impact on
the emerging markets prior to the COVID-19 pandemic.
During the COVID-19 Pandemic, H1a has been accepted since gold price return and
volatility seem to affect the Shanghai Stock Exchange positively. This is contradictory to
previous year's findings. Implying that even though the COVID-19 pandemic existed, gold
is and has been a long time safe-haven and hedge to most Chinese investors and the fact
that the breakout of COVID-19 did have a major impact on several other financial markets;
the Chinese investors reacted in a historic fashion by pursuing short-term security in
commodity markets during the Covid-19 as a measure of flight-to-safety. However,
considering the positive spillover effect from Gold to SSE Volatility proves that the
measures taken by the Chinese government by imposing lockdowns to reduce the spread
of the COVID-19 virus and other safety measures have seemed to benefit in recovery of the
markets, this finding is also in line with Corbet et al., (2021). As there is no negative impact,
it should translate that new investors looking to invest this as an opportunity to invest in
relatively low-priced stocks in a bear-market economy. In the case of BSESN, gold volatility
seems to have a positive effect, while Gold returns appear to have a negative effect. It has

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been studied by Reboredo (2012) when investigating gold's nature of safe haven that in
terms of crisis, investors transfer from high-risk assets such as stock market into more
reliable assets such as gold which in turn causes the stock markets to crash while appraising
the price of gold due to increased demand. It appears that has also been the case during the
COVID-19 pandemic, where investors are switching between assets to improve the
effectiveness of their risk-return behavior. This conclusion is also on par with the results of
Jain & Biswal (2016) as the GARCH results of Table 4 & 5 show a bilateral interrelation
where the fall in Gold price leads to a fall in the Bombay Stock Exchange SENSEX and the
fall in the SENSEX leading to an incrementation in Gold price.
Hypothesis 2a & 2b seem to be rejected in the case of the volatile independent data's
effect towards both the dependent data. However, it can be observed in Table 4 that DXY
Returns has a significant negative impact on SSE Volatility which approves H2a. This
implicates that with the fall or rise of the Dollar Index, the SSE will face an opposite effect.
However, this being said, the result is the same as the occurrences of the previous year, i.e.,
the pre-pandemic era, which shows that with or without the economic shocks, the US
Dollar index's effect on Chinese financial markets remains unchanged. This could be due
to the fact that the Chinese government, though they claim to be a managed floating regime,
do intervene significantly in the exchange rate determination and also pose heavy
regulation on everyday stock market price movement so as to shield their stock market
from foreign capital movements causing high volatility in the Chinese financial markets
(Naresh et al., 2018).
The overall analysis of the combined data of the years 2019 through 2020 shows that
in all significant situations H1a and H1b is accepted where Gold Price return positively
affects SSE volatility and Gold Price volatility positively affects SSE and BSESN volatility.
This may not only be due to the fact that investors seeking safety during the 2020 crash
turned to as a hedging mechanism, but could also is possibly due to the other fact that India
and China are the world's highest consumers of gold not only as a commodity but also for
cultural and traditional jewelry, ornaments, etc. On the other hand, DXY return and DXY
volatility has had a significant positive effect on SSE volatility, completely disproving H2a
while, DXY volatility has proved to negatively affect BSESN volatility proving H2b
acceptable as India is a developing and emerging market whose financial markets are
highly influenced by USD/IDR exchange rate unlike China, who is one of the world's
leading economies and have high government intervention when concerning financial and
economic factors.

6. CONCLUSION, LIMITATIONS, AND SUGGESTIONS

The research was done on this paper to prove that Dollar Index and Gold Price have
had opposite effects on BSESN. This paper examined the role of GC and DXY in 2019 during
the outbreak of the Coronavirus in 2019. The daily data of GC, DXY, and SESN served as
independent variables to identify the significant influence studies report price volatility
over time. The daily data was all used from January to August 2019 and August of 2020, as
well as a merged daily series during these dates. The effects of Covid-19 ruled the stock
markets since December 2019 and had already manifested in Chinese markets by February.
This study, therefore, used data from January. Unit roots were first checked using the ADG

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methods, and no information was found, making the normality test applicable. Finally, the
data was modeled using GARCH to calculate the amount of volatility
The study found that gold, ever since being used extensively as a hedge, trusted, and
resorted to in both India and China, had a huge impact on the volatility of BSESN and SSE.
While DXY, since it influences the USD/IDR Exchange Rate, did have a significant impact
on BSESN. Although the significant impact of DXY towards SSE was very limited due to
the strength of the Chinese economy, the rate at which the Chinese Yuan responds to the
Dollar Index, and the heavy influence and intervention of the Chinese governments toward
financial policies and prices. The intention of this study determines how the financial
markets of China and India, namely, Shanghai Stock Exchange and Bombay Stock
Exchange SENSEX, are volitively sensitive to two of the most major influencers of stock
market spillover and trader mentality, i.e., Gold Price and the Dollar Index. Knowing these
adverse effects can help government policymakers regulate or intervene to control extreme
volatility, take timely action, and even prevent market crashes and negative spillover
effects.
Even though this study proved the gap in the economic standing of both the
emerging markets and how India is more vulnerable to the US Dollar rate and also how
China, even though highly influenced by the pandemic, seemed to handle the after-effects
of the shock relatively well, there are a few areas that are to be even more extensively
studied to completely understand the investor behaviors and volatility spillover effects.
Future researchers can also suggest that they also extensively include more independent
variables such as Oil Prices, Exchange Rate/FOREX, and bitcoin, the latter especially in the
case of China, as these variables play major roles in bear market situations also in cases of
flight-to-safety and flight-to-quality.

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